What to do if there is no successor in sight?

For decades, succession within the family has been the ideal model for continuing a business in the SME sector. However, reality shows that many companies lack a suitable successor, whether for personal, structural, or economic reasons. 

Sometimes there are no children, sometimes the children are not willing or qualified to continue the business. In other cases, the company has become so large and complex over the years that continuing it internally does not appear economically viable. External factors – such as increasing competitive pressure or industry-specific structural change – can also make a sale or management buyout (MBO) more realistic than a family-internal transfer. 

When succession becomes a strategic decision 

Refraining from succession within the family is not a failure, but often the result of objective, long-term consideration. 

The main options in this context are: 

• Sale to an existing management team (MBO) 
• Sale to a competitor or strategic investor 
• Involvement of a private equity investor with transitional arrangements 

Regardless of the option chosen, the question as to how the sales process can be optimally prepared and supported from a legal and tax perspective arises early on. 

Focus on legal aspects – contract design, responsibility, and transaction security 

From a legal perspective, a clear structuring of the transaction is particularly crucial. There are significant differences between an MBO and a sale to third parties: 

• In a management buyout, an internal management team without its own financial resources is often faced with the challenge of financing the purchase through banks or external investors. In this case, issues such as collateral, the purchase price payment method, and contractual liability must be clearly regulated. Non-competition clauses and management contracts need to be adjusted as well. 
• When selling to a competitor or investor, data protection requirements, confidentiality agreements (NDA, letter of intent), and structured due diligence are key. The articles of association, approval regulations, and existing shareholder rights are often outdated and should be reviewed in advance. 

The legal framework provides the basis for a formally and economically sound transaction 

Tax planning – creative freedom and pitfalls 

At the same time, the tax structure of the sale is crucial. Special rules apply to the taxation of capital gains, particularly in the case of sole proprietorships or partnerships: 

• For individuals, Art. 16 EStG (German Income Tax Act – sale of an entire business) and, in many cases, the reduced tax rate under Art. 34 EStG apply, particularly from the age of 55 or in the event of permanent occupational disability. 
• The difference between an asset deal and a share deal is highly relevant – both from the seller’s and the buyer’s perspective. 
• For more complex structures, it might be advisable from a tax perspective to transfer assets to a limited liability company (GmbH) or limited partnership (GmbH & Co. KG) in advance in order to better control a transparent legal form, asset exit taxation, or subsequent distribution options. 
• Classic risks include failure to observe blocking periods, unintentional termination of business splits, excessive withdrawals, incorrect treatment of undisclosed reserves, or loss of loss carryforwards. Careful planning in advance is essential in order to take advantage of structuring options and avoid undesirable tax effects. 

Streamline structures – Secure documentation – Organize processes 

The sales process does not begin with the signing of a letter of intent – it often starts months, if not years, earlier. 

Successful transfers are usually the result of long-term preparation: 

• Corporate structures are streamlined 
• Assets not required for business operations are separated 
• Contracts, documents, and key business figures are organized 
• Preparations are made for valuation – both economically and for tax purposes 

At the same time, it is advisable to identify tax-sensitive arrangements or “established” special solutions at an early stage and adjust them in advance – not only when requested by a buyer as part of due diligence. 

Succession outside the family – not an exception, but a strategic option 

The generational change in small and medium-sized enterprises requires realistic models. If succession within the family is not possible or economically viable, a sale or management buyout is a responsible solution – provided legal and tax issues are considered in conjunction with each other. 

As interdisciplinary advisors, we know from practical experience: the success of such transactions is not solely attributable to the contract or tax model, but rather to the preparation, structure, and interaction of all parties involved.